michigan 501c3

How to Start a 501c3 in the State of Michigan

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The 501c3 application process for nonprofits is an intricate and exacting one. When you obtain 501c3 status, your organization automatically becomes tax-exempt, as well as eligible for a variety of federal and private grants. Naturally, then, oversight is robust: where there is an opportunity for misuse, there is going to be strong regulation. 

Forming a 501c3 varies from state to state. Learn exactly what you need to do to get one started in the state of Michigan - complete with hints, tips, and a whole host of resources, all in this comprehensive article. We hope you find it helpful!

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Before Applying for Tax-Exempt Status in Michigan

Prior to the actual application process, there are a series of steps you must follow to ensure that your nonprofit will be eligible for tax-exemption. 

Conduct Research

Before you do or start anything else, it is imperative to do your research. The filing process will go far more smoothly if you understand just what is required of you, and you know how to avoid common pitfalls

Your first step should be to determine whether your organization actually qualifies for tax-exempt status. You can find a list of requirements and examples of tax-exempt organizations on the IRS website. 

Next, find out what you will need to submit to the IRS to file for 501c3 status. We will detail these documents in the next section. 

Finally, figure out which of the Form 1023 options is the right one for your organization. There are two different forms: the traditional Form 1023, and Form 1023-EZ. Some groups, like religious institutions, are not required to fill out either.  

Form 1023-EZ was designed for smaller nonprofits. To be eligible for this option, your group must have assets valuing less than $250,000, or annual gross receipts of $50,000 or less. If your organization is likely to receive donations higher than this, you will fill out the Form 1023. The current filing fee for the Form 1023 is $600, while the filing fee for Form 1023-EZ is $275. 

Name Your Organization

What goes into coming up with a suitable name? A lot, as it happens. When you choose a name for your Michigan nonprofit, you first need to be sure that the one you want is available. You can check for availability at the Michigan name database on the LARA dept website. 

Salma looking for a name for her organizationSalma is brainstorming potential names for her organization

Next, you need to ensure you follow all the naming requirements for the state of Michigan. It cannot, for example, be the same as or even confusingly similar to any existing corporate name on file with the state. Be sure to check out all of the naming requirements so you do not miss a beat.

Pro Tip: When brainstorming the name for your nonprofit, don’t forget to check the domain name availability as well! While not 100% necessary, it can make your website easier to find if it the same as your organization. 

Set Up Your Nonprofit’s Governing Structure

While there are a variety of ways that board governance works, the main function of such an entity is to ensure that your nonprofit remains on track toward achieving its mission goals, that it maintains fiduciary integrity, and manages your CEO. 

That said, your governance structure can follow any one of several models. Here are some of the most common types of governance models:

The Cooperative Governance Model. For this model, the board works without a CEO. Decisions are made as a group of equals, and it is highly democratic in nature. No one member of the board has more power or a higher standing than another. 

Advisory Board Model.  An advisory board is typically made up of a group of professionals known and trusted by the nonprofit’s management team. They each bring to the table a unique skill or talent to the organization that they offer free of charge. This team works under a CEO or a president. 

Patron Governance Model. This model is similar to the advisory board, but with a few key differences. The board is essentially made up of wealthy patrons who use their influence to acquire donations from their network of philanthropists. The main purpose of this type of board is fundraising, and members have less influence over the CEO. 

Policy Board Model. This governance model has no standing committees, and the board delegates most of their power to the CEO. The CEO updates the board on activities and decisions through frequent meetings. This type of board is the most common, but can also be combined with other models. 

Management Team Model. Another very popular governance model, the management team runs things very much like a for-profit corporation. Rather than hiring teams or individuals to handle things like fundraising, HR, and PR, they form committees that handle these tasks themselves. 

Regardless of which model you choose, your nonprofit organization must have at least three directors in the state of Michigan. This initial board of directors is essential for laying out the purpose and goals of your nonprofit. 

Pro Tip: Most of the above governing structures can apply to nonprofits in any state, whether they are Texas 501c3’s, Ohio 501c3’s, or Florida 501c3’s. 

Form By-Laws and Conflict of Interest Policy

While by-laws are not required to be filed with the Michigan Bureau of Commercial Services, they must be prepared in a way that complies with Michigan law. These bylaws will lay out the rules and procedures for electing directors and officers within your organization, holding meetings, and all other corporate formalities. They are the internal operating manual for your organization. 

It is also important to have a Conflict of Interest policy. As laid out by the National Council of Nonprofits, this policy should include:

  • Requirements for anyone with a conflict, or anyone who thinks they may have a conflict of interest to disclose  

  • A prohibition on any board member with a conflict of interest to vote on any issues pertaining to said conflict

  • The process used by the board to determine whether a member has conflicting interests

While not actually required, the National Council of Nonprofits also states that many nonprofits will hold an annual board meeting during which they will discuss hypothetical conflict of interests, as well as role-play a number of ways to manage these conflicts, should they arise. 

Appoint a Michigan Registered Agent

To register a nonprofit in the state of Michigan, you must have an agent for service of process. This is a corporation or individual that consents to receiving legal documentation on behalf of the nonprofit if it is sued. They must have a street address in Michigan to qualify. This role is usually filled by an officer or director of the organization initially. 

Articles of Incorporation

Articles of incorporation are a required document for creating a nonprofit. This series of basic information about your organization is filed with the Michigan Department of Licensing and Regulatory Affairs. It should include the following:

  • Name of the corporation

  • Purpose of the corporation (defined by IRS-required language)

  • Whether decision making belongs to the members or board of directors

  • Whether stock is issued or not. If so, also list the total number of shares. If not, add the value of your assets and how the nonprofit will be financed

  • Mailing address of the organization’s registered office

  • Names and addresses of all incorporators as well as the resident agent

Pro Tip: Articles of Incorporation may be filed online or through the post. The filing fee is $20. 

Apply for a Federal Employer Identification Number

Before applying for 501c3 status, a corporation must have a federal employer identification number (EIN), even if you have no employees. To receive this you must complete an online application that can be found on the IRS website. There is no filing fee for this action. 

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Applying for 501c3 Status

Now that you have formed your nonprofit, it is time to apply for your federal and Michigan state tax-exemptions. 

Federal Tax-Exemption

To be granted tax-exempt status with the federal government, you will need to fill out Form 1023 with the IRS. It is a long and intricate form that requires a lot of information about your nonprofit, including organizational structure, finances, history, governance practices, and operations. The fee for filing Form 1023 is $600. 

Emily ready to start the application processEmily is feeling ready to start the application process!

A more streamlined version is available to smaller nonprofits. The 1023-EZ may be filed online by an organization that has total assets valued at less than $250,000 and projected annual gross receipts of less than $50,000 dollars. The fee for filing Form 1023-EZ is $250. 

More information about both of these forms and requirements can be found on the IRS website. 

Obtain Your Michigan State Tax-Exemption

In the state of Michigan, once you have acquired tax-exempt status from the federal government your organization is automatically exempt from Michigan sales and use tax. To claim these exemptions with a vendor, you can submit a completed Form 3372 (Certificate of Exemption) with a copy of your IRS 501c3 determination letter. 

For additional information on tax-exemptions you can visit the website for the Michigan Department of Treasury

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Summary and Definitions

For quick reference, here is a list of pertinent terms and the definitions of the forms and institutions we have discussed in this article. 

Important Documents to know for 501c3 status

Form 1023. To be filed with the IRS, this form requires a large amount of information about your nonprofit organization. If approved, you are granted 501c3 tax-exempt status for your nonprofit. 

Form 1023-EZ. A truncated and simplified version of the 1023 that can be filed by smaller nonprofits (i.e. those with less than $250,000 in assets and less than $50,000 projected gross receipts annually). 

Form 3372 Certificate of Exemption. A form to be filled out and offered along with your IRS 501c3 Determination Letter to obtain exemption from Michigan use and sales tax. 

Federal Employer Identification Number (EIN). Apply for this number online with the IRS before applying for tax-exempt status. 

Articles of Incorporation. This information must be filed with the Michigan Department of Licensing and Regulatory Affairs (LARA) before applying for tax-exempt status. It includes data like the name of your organization, its mailing address, purpose, and governance details. 

Bylaws. Rules and procedures that are used as an operating manual for your nonprofit. 

Conflict of Interest Policy. A document that lays out how your organization will address conflicts of interest. 

Organizations

IRS. The Internal Revenue Service regulates and enforces tax law for the federal government. This is the department you must file with for tax-exempt status. 

Department of Licensing and Regulatory Affairs (LARA). This department is part of the Michigan executive branch and is the principal department to oversee professional licensing, employment, construction, and commerce. This is where you file your articles of incorporation. (Formerly known as the Department of Commerce). 

Nonprofit Positions

CEO. Chief Executive Officer. This individual is responsible for being the public face of the organization, delegating tasks, and board development. 

President. A comparable position to CEO. Leads the board of directors, presides over meetings of the board, and performs duties incumbent to the office. 

Board of Directors. Governing body of a nonprofit. Provides oversight and a variety of skills to help an organization run smoothly. Members focus on high-level strategy, their nonprofit’s mission, and overarching goals. 

Helpful Websites to Visit for More Information

IRS.gov. The official IRS website. This is where you will find all the information you need to comply with requirements, as well as the documents you need to file. Some can be filed electronically directly from the site. 

Michigan.gov. Michigan Department of the Treasury website. They have all the latest information on tax-exemption for the state level. You can also access the LARA site from here, and visit their names database to determine whether your nonprofit name is available. 

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Final Thoughts

While forming a nonprofit can be a daunting task, it is absolutely achievable with the right research and a bit of gumption. Knowing what is involved is an enormous first step to take - and armed with this information, you can start the process without fear of ignorance or being caught off guard!

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FAQ

💡How do I form a 501c3 in Michigan?

It is a bit of a process to form a 501c3 in Michigan, but if followed step by step is very doable. Begin by forming your board, choosing a name, and a governing style. Then file articles of incorporation, obtain an EIN, and you may then apply for 501c3 status through the IRS using Form 1023 or Form 1023-EZ (for smaller nonprofits). Find out more. 

🔑How much does it cost to form a 501c3 in Michigan?

This depends on whether the nonprofit is a recognized 501(c)(3) organization. Although even the tax-exempt entities will have to pay certain federal payroll taxes. Find out more. 

📝 What to prepare before applying for 501c3 status in Michigan?

You want to have your articles of incorporation filed, and a board in place. You will also need to obtain an EIN from the IRS prior to filing for 501c3 status. Find out more.  

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